Tax reform plan earmarks P48B for poor households

The government’s tax reform plans under House Bill (HB) 4774 earmarks some P48 billion for targeted transfers that would benefit the bottom 50 percent of the population in its first year of implementation, the Department of Finance said in a statement.

The targeted transfers would shield poor households from the impact of the fuel excise tax adjustment and other revenue compensating measures under the bill, Finance Undersecretary Karl Kendrick Chua claimed in the statement.

Chua maintained that the bill is pro-poor as it shifts the tax burden to rich families by taxing their consumption rather than income, so that additional revenues raised from this effort could be used for targeted transfers to indigent families and for massive public spending on infrastructure and human capital development.

House Bill 4774 covers the lowering of personal income tax (PIT) rates and a corresponding set of revenue-compensating measures, including lowering the rates for estate and donor’s taxes and expanding the VAT base but retaining the exemptions enjoyed by senior citizens and persons with disabilities. It also intends to raise automobile and fuel excise taxes.

Complementary reforms being considered by Congress to the revised tax package include introducing a sugar-sweetened beverage tax, indexing the motor vehicle user’s charge to inflation and granting an amnesty to past estate tax cases.

As the VAT is a tax on consumption, the burden would be placed on the rich than on the poor, Chua noted.

“The VAT should not be viewed as an incentive but as a consumption tax. We want to help the poor but exemptions are not the way to go about this because it leads to large revenue leakages. Targeted transfers that will ensure that the benefits go to them directly are the best approach in helping poor and vulnerable households,” he said.

The poor and other vulnerable sectors will not be significantly affected by the reforms in the VAT system because “most of their purchases are already exempt from VAT and they often buy from marginal suppliers, which by law are also exempt from VAT,” Chua claimed.